Court of Appeal fixes rate at 5%, settles long-standing debate: Bogoroch & Associate’s Ryan Marinacci
This article was produced in partnership with Bogoroch & Associates LLP.
Two recent Court of Appeal decisions confirm the presumptive prejudgment interest (PJI) rate for non-pecuniary damages sits at 5% not 1.3%, settling to an extent the debate that existed in previous caselaw.
For Ryan Marinacci, associate at Bogoroch & Associates LLP, the confirmation is a welcome one for the plaintiff-side of the table.
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“Plaintiffs suffer a loss which often occurred years before the actual trial. Prejudgment interest is meant to recognize that and compensate the plaintiffs for the time value of money and lost interest they would have earned had they had the money to invest from the date of loss. Essentially, it results in a greater award for plaintiffs.”
The presumptive prejudgment interest rate is 5% under s. 128 of the Courts of Justice Act and Rule 53.10 of the Rules of Civil Procedure. In accordance with the Courts of Justice Act s. 130, if a party wants to deviate from the presumptive rate, they can bring a motion and the court must consider the factors in ss. 2.
In the trial decisions being appealed from, the trial judges set PJI at 1.3% based largely on the consumer price index (CPI) over the same period. On appeal, the panel found that the trial judges failed to consider the factors under s. 130(2). Instead, the trial judges had interpreted changes in “market interest rate” (s. 130(2)(a)) to mean the CPI and did not consider the other factors. Both judges reduced prejudgment interest from 5% because the rate of inflation based on the CPI was lower at the time of the incidents — 2010 in Henry and 2015 in Aubin — and over the course of the initial lawsuits. In both cases the Court of Appeal found that it was an error for the trial judges to simply rely on the average CPI during that time.
“The court went through the legislation in both decisions and noted that MIR is not defined, and found that it was an error for the trial judges to simply use the CPI as a stand-in,” Marinacci explains, noting that the appeal court ultimately fixed the PJI at 5% in Henry v. Zaitlen and at 8.46% in Aubin v. Synagogue and Jewish Community Centre of Ottawa (Soloway Jewish Community Centre). It was also an error for the trial judges not to have considered the other factors under s. 130(2).
The court further observed that the objective of PJI is to encourage early settlement and make sure defendants do not receive a windfall benefit in the form of use of the money that should have been paid to the plaintiff. For example, if the defendant earns a high rate of interest on the damages it must pay out, it’s beneficial for them to hold out unless PJI is appropriately calculated. In Aubin, the plaintiff brought a motion to deviate upwards to 8.46% and led evidence that had they had the money from the time of the incident, they would have seen a rate of return similar to what they earned on other investments, which was 8.46%.
On the other hand, part of the rationale for deviating downward from the presumptive 5% rate is to avoid overcompensation to the plaintiff. In both cases, the Court recognized that plaintiffs would not be fully compensated (let alone overcompensated) even at a higher rate because PJI is calculated as simple interest whereas invested interest, which they would have been earning, is compound. Therefore, even if the PJI rate is higher than the rate of CPI, it’s still not over-compensation.
In Aubin, the appellants also provided evidence on the high rate of return of the defendant’s insurance company during the same time frame to further support their request for an upward deviation. The Court of Appeal ultimately agreed with the appellants, confirming that evidence of the rates of return on the plaintiff's investments and the insurer's investments are relevant to the assessment of PJI.
“Before these two cases, there were routinely disputes as to the appropriate prejudgment interest rate, but the Court of Appeal in these decisions has confirmed that it should be fixed presumptively at 5% and not simply based on the CPI,” Marinacci says. “And as another takeaway for plaintiff counsel, when there’s evidence to support upward deviation, it’s a good avenue to explore.”
